ARBITRATION VERSUS LITIGATION
By Attorney Randall J. Andersen
September, 2015
By Attorney Randall J. Andersen
September, 2015
Disclaimer: The information contained on this page is not legal advice. The information provided on this website is for general informational purposes and is not necessarily updated to account for changes in the law. You should consult with an attorney for legal advice regarding your individual circumstances.
We are often asked about the differences between arbitration and litigation with respect to construction disputes. Arbitration is the process by which parties agree to have their dispute decided by an impartial third person (an arbitrator) who is selected by the parties. The parties agree that the arbitrator’s decision will be final and binding, and in most cases, non-appealable.
"Arbitration" is sometimes confused with mediation. Mediation involves the use of a third-party mediator who meets with the parties in an effort to reach a voluntary settlement of the dispute. Mediation is not binding. If mediation fails, the parties will proceed either to arbitration or litigation.
"Litigation" means having the dispute resolved through the court system, either by a judge, or by a jury trial.
A contractor or subcontractor cannot be forced into arbitration unless it agreed to arbitrate disputes. The agreement to arbitrate is frequently included in the construction contract signed at the commencement of the project.
Arbitration has historically been viewed as a quicker and more efficient means of resolving construction disputes. Many arbitrators who serve in construction arbitration cases have experience working in the construction industry (or are attorneys who have experience with construction disputes). For example, the American Arbitration Association panel of arbitrators includes contractors, subcontractors, engineers, architects, consultants and attorneys who have extensive experience with construction disputes. In litigation, judges and juries often have little or no experience in the construction industry.
Arbitration is often promoted as being quicker than litigation. The length of time required for litigation is dependent on the size of the case and the court system where the case is located. Cases in the Wisconsin courts frequently progress quicker than they do in the court systems in other states.
When a construction dispute is in litigation, the court file and proceedings are normally open to the public. Arbitration proceedings in private construction disputes normally are not open to the public.
Is arbitration less expensive? In some cases, it can be. Normally there is less pretrial discovery with arbitration than with litigation, and arbitration hearings are often speedier and more efficient than trials in the court system, so the parties’ own attorney fees may be less with arbitration. However, with arbitration the parties are responsible for paying the arbitrator’s fees, travel expenses for the arbitrator, the rental of a location for the hearing, and the fees of the organization which arranges for the arbitration. With litigation, the parties are not required to pay these types of expenses (instead, the parties pay a filing fee to start the lawsuit, and nominal jury fees if a jury trial is requested).
With litigation, the judge’s (or jury’s) decision is constrained by statutory and case law, and the conduct of the trial is governed by strict rules of evidence. Arbitrators, on the other hand, have more flexibility in determining whether to admit evidence based on perceptions of fairness and equity as opposed to strict rules of evidence followed in the court system.
There is normally less pre-hearing discovery with arbitration, which can decrease the costs for the parties. However, if a party needs more discovery to prepare its case for hearing, that can be a disadvantage.
A decision in arbitration is more likely to be "final" than a decision in litigation. Parties to litigation normally have the right to appeal the trial court decision to the court of appeals, with the possibility of a second appeal to the supreme court. With arbitration, the decision of the arbitrators is in most cases non-appealable.
Contracts which require the parties to arbitrate their disputes are viewed favorably by the court system, and in most cases if a party has signed a contract agreeing to arbitrate, the arbitration agreement will be enforced and the parties will be required to arbitrate their dispute.
One problem that can arise with arbitration involves a situation where some, but not all of the parties have agreed to arbitration. Therefore, contractors who are contractually required to arbitrate their disputes with the owner will normally include provisions in their subcontracts, requiring that disputes with subcontractors also be subject to arbitration in the same arbitration proceeding.
"Arbitration" is sometimes confused with mediation. Mediation involves the use of a third-party mediator who meets with the parties in an effort to reach a voluntary settlement of the dispute. Mediation is not binding. If mediation fails, the parties will proceed either to arbitration or litigation.
"Litigation" means having the dispute resolved through the court system, either by a judge, or by a jury trial.
A contractor or subcontractor cannot be forced into arbitration unless it agreed to arbitrate disputes. The agreement to arbitrate is frequently included in the construction contract signed at the commencement of the project.
Arbitration has historically been viewed as a quicker and more efficient means of resolving construction disputes. Many arbitrators who serve in construction arbitration cases have experience working in the construction industry (or are attorneys who have experience with construction disputes). For example, the American Arbitration Association panel of arbitrators includes contractors, subcontractors, engineers, architects, consultants and attorneys who have extensive experience with construction disputes. In litigation, judges and juries often have little or no experience in the construction industry.
Arbitration is often promoted as being quicker than litigation. The length of time required for litigation is dependent on the size of the case and the court system where the case is located. Cases in the Wisconsin courts frequently progress quicker than they do in the court systems in other states.
When a construction dispute is in litigation, the court file and proceedings are normally open to the public. Arbitration proceedings in private construction disputes normally are not open to the public.
Is arbitration less expensive? In some cases, it can be. Normally there is less pretrial discovery with arbitration than with litigation, and arbitration hearings are often speedier and more efficient than trials in the court system, so the parties’ own attorney fees may be less with arbitration. However, with arbitration the parties are responsible for paying the arbitrator’s fees, travel expenses for the arbitrator, the rental of a location for the hearing, and the fees of the organization which arranges for the arbitration. With litigation, the parties are not required to pay these types of expenses (instead, the parties pay a filing fee to start the lawsuit, and nominal jury fees if a jury trial is requested).
With litigation, the judge’s (or jury’s) decision is constrained by statutory and case law, and the conduct of the trial is governed by strict rules of evidence. Arbitrators, on the other hand, have more flexibility in determining whether to admit evidence based on perceptions of fairness and equity as opposed to strict rules of evidence followed in the court system.
There is normally less pre-hearing discovery with arbitration, which can decrease the costs for the parties. However, if a party needs more discovery to prepare its case for hearing, that can be a disadvantage.
A decision in arbitration is more likely to be "final" than a decision in litigation. Parties to litigation normally have the right to appeal the trial court decision to the court of appeals, with the possibility of a second appeal to the supreme court. With arbitration, the decision of the arbitrators is in most cases non-appealable.
Contracts which require the parties to arbitrate their disputes are viewed favorably by the court system, and in most cases if a party has signed a contract agreeing to arbitrate, the arbitration agreement will be enforced and the parties will be required to arbitrate their dispute.
One problem that can arise with arbitration involves a situation where some, but not all of the parties have agreed to arbitration. Therefore, contractors who are contractually required to arbitrate their disputes with the owner will normally include provisions in their subcontracts, requiring that disputes with subcontractors also be subject to arbitration in the same arbitration proceeding.